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### Viewing cable 09MANAGUA359, NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09MANAGUA359 | 2009-04-03 16:56 | 2011-06-01 08:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Managua

Appears in these articles:
http://www.nacion.com/2011-05-30/Mundo/NotasSecundarias/Mundo2758456.aspx
http://www.nacion.com/2011-05-30/Mundo/NotasSecundarias/Mundo2758467.aspx
http://www.nacion.com/2011-05-30/Mundo/NotasSecundarias/Mundo2758468.aspx
http://www.nacion.com/2011-05-30/Mundo/NotasSecundarias/Mundo2758464.aspx
http://www.confidencial.com.ni/articulo/4103/la-embusa-y-el-gabinete-de-ortega
http://www.confidencial.com.ni/articulo/4104/d-rsquo-escoto-en-onu-ldquo-un-desafio-de-ortega-a-ee-uu-rdquo
http://www.confidencial.com.ni/articulo/4102/estrada-y-la-ldquo-doble-cara-rdquo-ante-ee-uu
http://www.confidencial.com.ni/articulo/3966/la-ldquo-injerencia-rdquo-de-ee-uu-en-el-2006
http://www.nacion.com/2011-05-23/Mundo/Relacionados/Mundo2758764.aspx
http://www.nacion.com/2011-05-23/Mundo/NotaPrincipal/Mundo2758753.aspx
http://www.confidencial.com.ni/articulo/4041/millones-de-dolares-sin-control-y-a-discrecion
http://www.confidencial.com.ni/articulo/4040/la-ldquo-injerencia-rdquo-de-venezuela-en-2006
http://www.confidencial.com.ni/articulo/4047/rodrigo-barreto-enviado-de-ldquo-vacaciones-rdquo
http://www.nacion.com/2011-05-16/Mundo/NotasSecundarias/Mundo2757239.aspx
http://www.nacion.com/2011-05-16/Mundo/NotaPrincipal/Mundo2746658.aspx
http://www.nacion.com/2011-05-16/Mundo/Relacionados/Mundo2757244.aspx
http://www.nacion.com/2011-05-16/Mundo/Relacionados/Mundo2746673.aspx
http://www.confidencial.com.ni/articulo/3991/dra-yadira-centeno-desmiente-cable-diplomatico-eeuu
http://www.confidencial.com.ni/articulo/3968/pellas-pronostico-a-eeuu-victoria-de-ortega-en-2006
http://www.confidencial.com.ni/articulo/3967/barreto-era-ldquo-fuente-confiable-rdquo-para-eeuu

`

    VZCZCXRO9307
    RR RUEHLMC
    DE RUEHMU #0359/01 0931656
    ZNR UUUUU ZZH
    R 031656Z APR 09
    FM AMEMBASSY MANAGUA
    TO RUEHC/SECSTATE WASHDC 3984
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEHCV/AMEMBASSY CARACAS 1352
    RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RHEHNSC/NSC WASHINGTON DC

` `

    UNCLAS SECTION 01 OF 02 MANAGUA 000359

    SENSITIVE
    SIPDIS

    TREASURY PLEASE PASS TO SARA SENICH

    E.O. 12958: N/A
    TAGS: EAID ECON PREL NU
    SUBJECT: NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT
    VENEZUELAN FUNDS REMAIN OFF-BUDGET

    REF: STATE 28885

    ¶1. (SBU) Summary:  Per Ref A, Embassy Managua reports that
    Nicaragua is in compliance with Section 7088 (c) of the
    Department of State, Foreign Operations, and Related Programs
    Appropriation Act (SFOAA).  The Nicaraguan budget is publicly
    available on the Ministry of Finance,s website, and is
    reviewed and approved by the National Assembly.  The budget
    does not, however, accurately or completely reflect funds
    originating from Venezuela, which remains a controversial
    issue with the National Assembly.  As part of its Poverty
    Reduction and Growth Facility agreement (PGRF), the IMF is
    trying to establish an accurate accounting of these funds.
    Nicaragua's current IMF program also includes work on
    improving transparency regarding capital expenditures.  USAID
    and other international donors continue to work with the GON
    to improve fiscal transparency.  End Summary.

    Nicaraguan Budget is Available on Website...
    --------------------------------------------

    ¶2. (U) Per Ref A request, Post reports that Nicaragua's budget
    process meets acceptable standards for transparency as
    outlined in Section 7088 (c) of the SFOAA.  The official
    budget is made public, both in its proposed and National
    Assembly approved versions, on the Ministry of Finance's
    website (www.hacienda.gob.ni).  The website details overall
    revenues and expenditures and breaks out the budget by
    ministry and agency.  Each ministerial budget details
    salaries, current expenditures, donor projects, and capital
    expenditures.  Nicaragua's budget development and
    administration is governed by Law 550, the Public
    Administration and Budgetary Regime Law, which requires that
    the national and municipal budgets meet World Bank and IMF
    standards.

    ...But Venezuelan Assistance Difficult to Assess
    --------------------------------------------- ---

    ¶3.  (SBU) Since President Ortega took office in January 2007,
    Venezuela has provided significant sums of off-budget
    assistance to the Nicaraguan Government.  A September 2008
    Central Bank Report (published largely at the IMF,s behest)
    listed $88.6 million in government-to-government assistance
    in 2007.  That assistance included $69.3 million in
    &petroleum cooperation,8 provided through ALBA Nicaragua,
    S.A. (ALBANISA), a joint venture between Petronic, a
    Nicaraguan state-owned oil company owning a 45% share, and
    PDVSA, a Venezuelan state-owned oil company owning a 55%
    share.  According to an agreement signed by Ortega and
    Venezuelan President Hugo Chavez, ALBANISA buys oil from
    Venezuela's PDVSA and pays 50% of the bill within 90 days.
    From the balance, ALBANISA loans 25% to a local development
    fund and 25% to an ALBA Fund, both of which undertake
    development projects in Nicaragua.  ALBANISA is supposed to
    repay these funds at an interest rate of 2% over 23 years,
    following a 2-year grace period.

    ¶4.  (SBU) President Ortega,s 2008 Annual Report states that
    total funding through ALBANISA was $375 million from its
    launch in 2007 through 2008, but this may not include
    off-budget assistance to the ruling FSLN (Sandinista National
    Liberation Front) party.  The FSLN appears to have used this
    part of this assistance to invest in party building, pay for
    party projects and political propaganda, and fund the
    campaigns of pro-government candidates in the November 2008
    municipal elections.  The GON has not explained how it has
    disbursed Venezuelan assistance or the mechanisms by which
    such assistance was processed, making a full assessment of
    the impact of such assistance difficult.

    ¶5.  (SBU) Questions have arisen in the National Assembly
    regarding Petronic,s 45% stake in ALBANISA, which would seem
    to assign it a 45% share of ALBANISA debt.  Walmaro
    Gutierrez, the FSLN Chairman of the Economic Commission in
    the National Assembly, counters that although PETRONIC is
    state-owned, the company is not subject to legislative
    authorization requirements that would otherwise apply to
    government entities.  Gutierrez points out that the 1979 law
    that established Petronic allows the company to acquire
    foreign debt without approval of the National Assembly.
    Opposition leaders argue that the 2003 Debt Law makes it
    clear that any debt acquired by state-owned companies )-

    MANAGUA 00000359  002 OF 002

    especially long-term financing beyond that required for
    operating a business -- must be included in the government
    budget and is subject to approval by the National Assembly.

    ¶6.  (SBU) There is little transparency about how ALBANISA
    funds are used.  ALABANISA manages some funds directly, while
    others are administered by a FSLN-linked financial
    cooperative, ALBA-CARUNA.  In implementing social programs
    and infrastructure construction, they may even be mixed with
    funds provided through the national budget.  For example,
    government officials have provided contradictory information
    regarding funding for the &Zero Hunger8 program, at times
    claiming that it is supported with ALBANISA proceeds and at
    other times claiming that resources from the national budget
    are used.  Similar questions have been raised about funding
    for &Houses for the People,8 a government program that
    officials claim was supported by ALBANISA but now appears to
    have been financed by the Nicaraguan Social Security
    Institute (INSS).
    USG Efforts to Improve Fiscal Transparency
    ------------------------------------------

    ¶7. (U) USAID funds a project aimed at institutional
    strengthening of management systems which includes
    restructuring the budgets of the Ministries of the Family and
    Health towards results based budgeting.  This process
    increases the transparency and accountability of the use of
    public funds.

    International Donors, Work on Fiscal Transparency
    --------------------------------------------- ----

    ¶8. (U) Other donor programs include:

    - World Bank: Project to increase efficiency, productivity and
    transparency in the public sector.  Total: $23.5 million.
    Initiated: March 2004. Ended: June 2008.

    - Inter American Development Bank: National Budget Audit.
    Project helps the Controller General's Office in preparing a
    reference framework and action plan to prepare financial
    audits and comply with budget execution as required by
    international donors who contribute to Nicaragua,s budget.
    Total: $407,000.

    ¶9. (SBU) The GON is currently in its second year of a
    three-year Poverty Reduction Growth Facility (PRGF) agreement
    with the IMF.  Two structural components of the agreement are
    capital spending controls and tax administration, both of
    which programs are focused on improving quality and
    transparency.  In addition, under the PRGF the GON agreed to
    monitor and report on Venezuelan aid both to the public and
    private sectors.  In accordance with this requirement, the
    GON,s Central Bank published a report in September 2008
    which detailed Venezuelan assistance to Nicaragua in 2007
    (however, many observers complained that the figures provided
    by the Central Bank were grossly underestimated).
    CALLAHAN

`